SANCTIONS AGAINST RUSSIA – URGENT

Regarding sanctions against Russia,^[1] from 10^th May 2022 the following will become illegal:^[2] to provide a registered office, business or administrative address as well as management services, or to arrange for another person to act as a trustee, nominee shareholder, director, secretary or a similar position, for a trust or similar legal arrangement for

• any natural persons living in Russia, or
• entities established in Russia.

The ban also applies to entities controlled 50%+ by those in (a) or (b); entities controlled by such entities, or any person acting on behalf of such persons as previously mentioned.

This ban does not apply to persons who would otherwise be sanctioned but who have a permanent or temporary residence in the EU, or by extension in the UK.    Actions to terminate such relationships already in place are permitted after 10^th May but only if they are strictly necessary to end the relationship.

For those who provide trust administration, corporate management services etc., then you are going to have to check who your UBOs are and if they are living in Russia, or established in Russia, terminate your relationship.

For those who provide advice to offshore trusts etc., you cannot rely on the fact that the trustees etc are regulated for AML purposes but will have to know who the UBO is (assuming you do not know already).

Jurisdictions which are steadfastly refusing to impose sanctions include Israel (last place I would put a trust for tax reasons), Hong Kong and the UAE.

If possible, you should consider excluding beneficiaries who reside in Russia or entities established in Russia for the duration of these rules or similar ones.  This would, in my view, include charities even though the regulation has a humanitarian exemption.

Alternatively, you might be able to use a flight clause to move the jurisdiction of the trust etc to a jurisdiction which has no sanctions.  Either way, for those in the Corporate Service Provider sector, there is a lot to consider and to consider without delay.

In addition to the above, you should consider the impact such changes could have.   Could a trust be left with only UK resident beneficiaries, or US beneficiaries, or both?  Would such actions trigger a change of control clause in the documents of any underlying company?  If a trust or company moves jurisdictions, will it need to suffer withholding taxes in the future?

Unfortunately, such decisions should be made with full and proper prior consideration.  However, as in this case, there might not be enough time.

References

^[1] Ditto Belarus.

^[2] We will use the EU Regulation EU 833/2014 (article 5m) which is incorporated by reference into UK anti-money laundering legislation in accordance with the European Union (Withdrawal Agreement) Act 2020.   USA Japan, Australia, Singapore and others are doing similar.